The £893m Glanmore Property Fund for private investors is set to undertake a £95m equity raising after breaching banking covenants, EGI News can reveal.
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The £893m Glanmore Property Fund for private investors is set to undertake a £95m equity raising after breaching banking covenants, EGI News can reveal.
The open-ended fund, which is the UK’s second largest for private investors, has asked its roughly 6,000 investors to participate in the £95m placement and open offer of new units.
The cash call aims to rectify a breach of loan-to-value covenants with one of its lenders, and give it enough headroom to survive further falls in the value of its portfolio.
The fund has negotiated an extension to its LTV covenant with its main lender, Royal Bank of Scotland, but the LTV ratio on a loan facility with its other lender, Canada Life, stands at 71% against a covenant of 70%.
The fund’s equity was valued at £211m on 1 May this year, with £682m of debt.
The fund’s managers, Tilney Asset Management, a branch of Deutsche Bank, and Cardales Chartered Surveyors, are seeking a revision of the LTV covenant with Canada Life in conjunction with the capital raising.
The board of the fund told investors in a circular sent out today that if it did not support the capital raising there was a risk that it would have to undertake a firesale of assets to pay down debt.
“If the open offer does not raise the full £95m it will not proceed,” the board said.
“The fund would remain in breach of its banking facilities and run the very real risk of being forced to dispose of properties quickly in a depressed market.
“By taking up their entitlement shareholders are helping to protect the value of their existing investments.”
The placement and open offer will see units offered at a 50% discount to the unit price in July this year. The current price of the unit in the fund is £28.69.
If unitholders do not take up their entitlement they will see the value of their holdings diluted by 25%.
The Glanmore fund is rare among private investor funds, which are usually ungeared.
At its outset in 1997, the fund intended to have a maximum gearing of 55%, but the sharp drop in property values means that it breached both internal guidelines and then banking covenants.
michael.phillips@rbi.co.uk
